At long last, the Senate passed the much-awaited Petroleum Industry Bill (PIB); the second time in the last two decades, which if assented to by President Muhammadu Buhari, would according to industry stakeholders, ensure transparency and openness in the oil and gas industry, drive investment into the nation’s oil sector and jumpstart the industry’s operations amid pressure against fossil fuels. In many assessments, the global extractive industries watchdog, Extractive Industries Transparency Initiative (EITI) which focusses on the quality of governance of extractive industries in resource-rich countries, ranks Nigeria far behind on issues of accountability, good governance and transparency, with which taxes and other revenues are remitted to the government and correctly confirmed the status of Nigeria’s oil industry as riddled with corruption. Since its inception, the Nigerian Extractive Industries Transparency Initiative (NEITI) has consistently exposed the opacity and corruption, which reign supreme in Nigeria’s oil sector. Operations in the nation’s oil and gas sector have over the years been shrouded in secrecy turning the God-given resources to a black box. This must now change.
Highlights of the PIB which contains 319 clauses include transforming the Nigeria National Petroleum Corporation (NNPC) into a profit-oriented company. The bill also created the Upstream Regulatory Commission to among others regulate upstream operations, including technical, operational and commercial activities and ensure compliance with all applicable laws and regulations governing upstream petroleum operations. The PIB also makes provisions for contract transparency, disclosure, and outlaws gas flaring. The bill earmarks 30% of NNPC profits for exploration of oil in frontier basins under the purview of the Upstream Commission. A major source of controversy and anger is the 3% reserved for development of host communities. Quite predictably, the national president, Host Communities of Nigeria Producing Oil and Gas (HOSTCOM), Chief Benjamin Tamanarebi, soundly rejected the 3% as an insult. The Pan Niger Delta Forum (PANDEF) also rejected the 3% arguing that the government cannot transform the oil industry without transforming the communities in whose backyard the industry operates. The report of the Senate Joint Committee on Petroleum, had proposed 5% for host communities, while stakeholders had in the original bill proposed 10%. But when the Senate began clause-by-clause consideration of the bill, it was reduced to 3%. The contentious issue of defining “host community” was finally resolved with “host community” not restricted only to oil-producing areas, but now defined to include communities where oil and gas pipelines run through like Cross River State.
While the passage of the bill is a watershed in the oil and gas sector, it is coming too late as the rest of the world is moving away from fossil fuels into renewable and clean energy. Although it is expected that the President would not delay the bill, the PIB should not be seen as an end in itself but only a means to an end. And despite disagreements on the right percentage of oil revenue for host communities, there sensible thing to do in the present circumstances is to run with what has been passed; any changes can come later in the form of an amendment to the PIB. It is indeed unfortunate that Nigeria has recorded huge losses in terms of direct foreign investment due to the archaic and obsolete laws in the oil and gas industry over the years. Last year alone, of the over $70 billion in foreign direct investment in the oil and gas sector in Africa, Nigeria attracted a paltry $2.8 billion (4%) of that amount as investors were forced to move to other jurisdictions like Angola and Ghana.
Although the PIB is a little too late, it remains a welcome development, as it would drive investment into the nation’s upstream oil and gas sector and create certainty for investors. But industry watchers are wary that even though the PIB provides a clear legal framework for investors in the oil and gas sector, it fails to address the underlying fundamental challenges, especially its archaic and outdated technological infrastructure. But crucially the manner in which various agencies in the oil and gas sector operate is totally deficient in providing an enabling environment for substantive transparency and the PIB cannot change that unless a concerted effort is made to streamline processes, people and technology as core operational business functions. This is hardly surprising as Nigerian officials have a tragic genius for crafting seemingly sensible laws and regulations and doing everything that expressly contravenes every letter and spirit of the laws.
It seems successive Nigerian governments deliberately created and left open a system of mammoth shadow revenue taps in the nation’s oil sector. The Federal Government has refused to address the urgent need to bring fairness, transparency and due process to the bidding through which oil blocks are allocated and the process for reviewing existing oil block concessions. Billions of dollars are easily made by high-ranking politicians and corrupt bureaucrats as a result of the wide discretion the system has for long permitted. Shamefully, despite the prevalence of required metering technology, for example, the Ministry of Petroleum Resources is yet unable to efficiently measure the quantity of crude oil pumped by the oil companies operating in Nigeria; even as new technologies are bringing greater volume of hitherto commercially unviable oil and gas into the western markets on which Nigerian exports rely.
Besides, transparency seems less of a consideration in Nigeria given the constant exposure of gargantuan corruption. The impotence of the government on, if not active promotion of corruption will remain a major obstacle to sanitizing the oil sector. In its latest review, of the Nigeria oil and gas sector, NEITI annual audit found billions of dollars in outstanding payments owed the Federal Government by oil companies, including the NNPC. Neither the NNPC nor the Oil Ministry has confirmed or denied this claim. According to NEITI, underpayment, underassessment, and variance in royalties, signature bonuses, levies and taxes abound in the oil sector. No significant step has been taken to redress these anomalies despite NEITI’s detailed reports on the enormous cost to the national treasury and recommendations on stemming the fiscal drain.
Despite the passage of the PIB, in what appears to be a policy somersault by the Buhari administration, N900 billion has been earmarked for fuel subsidy next year as the Federal Government is projecting a total budget package of N11.907 trillion for 2022. At the presentation of the 2022-2024 Medium Term Expenditure Framework (MTEF), Finance, Budget and National Planning Minister, Mrs. Zainab Ahmed, said crude oil production for 2022 will be 1.88 million bpd with a price benchmark of $57 per barrel. Some other fundamentals include an exchange rate of N410.15; FG’s share of federation account: N5.513 trillion; FG’s share of VAT: N339.3 billion and a projected deficit of N4.6 trillion while projected revenue is N8.359 trillion. The Minister regretted that as much as N850 billion was monthly paid in subsidizing imported petroleum products into the country, saying such a colossal sum of money could be invested into services that would positively impact the poor masses more than fuel subsidy, which benefits mostly the rich with their fleet of luxury cars.
Expectations are high that the PIB will sanitize the oil sector, especially the fuel subsidy regime. The emerging consensus, especially by the international donor community is that the fuel subsidy regime is unsustainable. This is not true, just as the despairing claim that Nigeria’s oil is a curse, is unacceptable. With the PIB, the Buhari administration should review all the arrangements with the cabal of oil marketers who have been gaming the system in collusion with NNPC officials. The fuel regime subsidized corruption and not Nigerians, so the answer is to take the corruption out of the subsidy regime and make it benefit the ordinary Nigerian. There is nothing wrong with a government subsidizing petroleum or other products for its citizens. The USA and the EU spend billions in subsidizing their farmers to the disadvantage of the global south. The extractive industry thrives in many other nations and do yield immense benefits to the citizens where the government acts in the best interest of the people as opposed to self-interest.
One of the greatest failures of the Goodluck Jonathan administration was the failure to pass the PIB. The then National Assembly, dominated by the PDP, failed to pass the PIB with squabbles over regional distribution of oil export revenue. Not only was an opportunity to improve the transparency and revenues of Nigeria’s oil sector lost, the industry was reduced to irrelevance as more African nations discovered oil and attracted investment into exploration and production. After failing to pass the PIB, Jonathan took the bizarre decision to retain and even expand the opaque discretionary powers that have often been abused by oil ministers. Jonathan was too preoccupied with the politics of 2015 to exercise the leadership required to pass the PIB. All the same, passing the PIB is the minimum first step that the Buhari administration has finally taken to put an end to the rampant corruption and impunity in Nigeria’s oil sector. The government has the opportunity of capitalizing on the PIB to demystify issues relating to oil bunkering, oil theft and subsidy, so that Nigerians can now know about it and know who to hold accountable. On this, history will not kindly judge President Buhari and anyone who fails to do his duty to ensure that Nigeria takes this remarkable step.
